U.S. patent application number 10/288916 was filed with the patent office on 2004-05-06 for emissions reduction portfolio.
Invention is credited to Cogen, Jack D., Gadd, Fiona Kathryn.
Application Number | 20040088179 10/288916 |
Document ID | / |
Family ID | 32175998 |
Filed Date | 2004-05-06 |
United States Patent
Application |
20040088179 |
Kind Code |
A1 |
Cogen, Jack D. ; et
al. |
May 6, 2004 |
Emissions reduction portfolio
Abstract
A computer-based method that includes receiving verified
emission reductions (VERs) associated with emission reduction
projects (ERPs) and converting the VERs into mutual portfolio units
(MPUs) based on predetermined factors. An emissions reduction
portfolio database of MPUs is created.
Inventors: |
Cogen, Jack D.; (New York,
NY) ; Gadd, Fiona Kathryn; (Cheshire, GB) |
Correspondence
Address: |
EDMOND R. BANNON
Fish & Richardson P.C.
45 Rockefeller Plaza, Suite 2800
New York
NY
10111
US
|
Family ID: |
32175998 |
Appl. No.: |
10/288916 |
Filed: |
November 6, 2002 |
Current U.S.
Class: |
705/36R ;
705/1.1; 705/412 |
Current CPC
Class: |
G06Q 10/10 20130101;
G06Q 50/06 20130101; G06Q 40/06 20130101; Y02P 90/84 20151101; Y02P
90/845 20151101 |
Class at
Publication: |
705/001 ;
705/412 |
International
Class: |
G06F 017/60 |
Claims
What is claimed is:
1. A method comprising: receiving verified emission
reductions(VERs) associated with emission reduction projects
(ERPs); converting the VERs into mutual portfolio units (MPUs)
based on predetermined factors; creating an emissions reduction
portfolio of MPUs; and creating a database based on the
portfolio.
2. The method of claim 1, wherein the ERPs include at least one of:
a renewable energy project; an emission reduction from process
improvements in manufacturing; an energy efficiency improvement
project; a fuel switching project; a carbon sequestration program;
a transportation efficiency improvement project; a solar power
technology project; a fuel-switching program; a reforestation
project; or a project to reduce methane, perfluorocarbons (PFCs),
hydrochlorofluorocarbons (HFCs), nitrous oxide (N2O) or sulphur
hexafluoride (SF6) emissions.
3. The method of claim 1, wherein the predetermined factors include
at least one of: a country in which an ERP is based; a country in
which the seller of an ERP is based; the credit rating of a company
associated with an ERP; the technology related to an ERP;
catastrophic risk associated with an ERP; emission data associated
with an ERP; or a government having jurisdiction over an ERP.
4. The method of claim 1, wherein the predetermined factors include
at least one of: procurement risk; market risk; credit risk; fraud
risk; or legal risk.
5. The method of claim 1, wherein the MPUs have a risk profile of
substantially the entire portfolio and are not tied to any specific
ERP.
6. The method of claim 1, further comprising processing a request
to transfer ownership of MPUs between parties.
7. The method of claim 1, further comprising processing a request
to redeem MPUs from the portfolio.
8. The method of claim 1, further comprising processing a request
to display over a network information associated with at least one
of VERs, ERPS, and MPUs.
9. The method of claim 1, further comprising providing an
investment review panel to review the predetermined factors and
modifying the predetermined factors if any of a list of
predetermined criteria change.
10. The method of claim 1, further comprising converting the MPUs
into valid compliance units (VCUs).
11. The method of claim 10, further comprising providing an
insurance product to guarantee the conversion of MPUs into valid
compliance units (VCUs).
12. The method of claim 1, further comprising charging membership
fees for evaluating potential VERs for the portfolio.
13. The method of claim 1, further comprising charging a percentage
of the value of the VERs as a fee for converting VERs to MPUs.
14. The method of claim 1, further comprising charging brokering
fees for transferring MPUs between parties.
15. The method of claim 1, further comprising charging
administrative fees for redeeming MPUs.
16. A system comprising: an emissions reduction portfolio database
of mutual portfolio units (MPUs); and a processor coupled to the
database, the processor having a memory executing a program for
converting verified emission reductions(VERs) into MPUs.
17. The system of claim 16, wherein the ERPs include at least one
of: a renewable energy project; an emission reduction from process
improvements in manufacturing; an energy efficiency improvement
project; a fuel switching project; a carbon sequestration program;
a transportation efficiency improvement project; a solar power
technology project; a fuel-switching program; a reforestation
project; or a project to reduce methane, perfluorocarbons (PFCs),
hydrochlorofluorocarbons (HFCs), nitrous oxide (N2O) or sulphur
hexafluoride (SF6) emissions.
18. The system of claim 16, wherein the predetermined factors
include at least one of: a country in which an ERP is based; a
country in which the seller of an ERP is based; the credit rating
of a company associated with an ERP; the technology related to an
ERP; catastrophic risk associated with an ERP; emission data
associated with an ERP; or a government having jurisdiction over an
ERP.
19. The system of claim 16, wherein the predetermined factors
include at least one of: procurement risk; market risk; credit
risk; fraud risk; or legal risk.
20. The system of claim 16, wherein the MPUs have a risk profile of
substantially the entire portfolio and not tied to any specific
ERP.
21. The system of claim 16, the processor further configured to
process a request to transfer ownership of MPUs between
parties.
22. The system of claim 16, the processor further configured to
process a request to redeem MPUs from the portfolio.
23. The system of claim 16, the processor further configured to
process a request to display over a network information associated
with at least one of: VERs; ERPS; or MPUs.
24. The system of claim 16, the processor further configured to
provide an investment review panel to review the predetermined
factors and modifying the predetermined factors if any of a list of
predetermined criteria change.
25. The system of claim 16, the processor further configured to
convert the MPUs into valid compliance units (VCUs).
26. The system of claim 25, the processor further configured to
provide an insurance product to guarantee the conversion of MPUs
into valid compliance units (VCUs).
27. The system of claim 16, the processor further configured to
charge membership fees for evaluating potential VERs for the
portfolio.
28. The system of claim 16, the processor further configured to
charge a percentage of the value of the VERs as a fee for
converting VERs to MPUs.
29. The system of claim 16, the processor further configured to
charge brokering fees for transferring MPUs between parties.
30. The system of claim 16, the processor further configured to
charge administrative fees for redeeming MPUs.
31. An article comprising a computer-readable medium that stores
computer-executable instructions for causing a computer system to:
receive verified emission reductions (VERs) associated with
emission reduction projects (ERPs); convert VERs into mutual
portfolio units (MPUs) based on predetermined factors; create an
emissions reduction portfolio database of MPUs.
32. The article of claim 31 including instructions to process a
request to transfer ownership of MPUs between parties.
33. The article of claim 31 including instructions to process a
request to redeem MPUs from the portfolio.
34. The article of claim 31 including instructions to process a
request to display over a network information associated with at
least one of VERs, ERPs, and MPUs.
35. The article of claim 31 including instructions to provide an
investment review panel to review the predetermined factors and
modifying the predetermined factors if any of a list of
predetermined criteria change.
36. The article of claim 31 including instructions to convert the
MPUs into valid compliance units (VCUs).
37. The article of claim 31 including instructions to provide an
insurance product to guarantee the conversion of MPUs into valid
compliance units (VCUs).
38. The article of claim 31 including instructions to charge
membership fees for evaluating potential VERs for the
portfolio.
39. The article of claim 31 including instructions to charge a
percentage of the value of the VERs as a fee for converting VERs to
MPUs.
40. The article of claim 31 including instructions to charge
brokering fees for transferring MPUs between parties.
41. The article of claim 31 including instructions to charge
administrative fees for redeeming MPUs.
42. A method comprising: receiving verified emission reductions
(VERs) associated with emission reduction projects (ERPs);
converting VERs into mutual portfolio units (MPUs) based on
predetermined factors; creating an emissions reduction portfolio
database of MPUs; and processing at least one of a request to
transfer ownership of at least one MPU between parties, and a
request to redeem at least one MPU from the portfolio.
43. The method of claim 42, wherein the ERPs include at least one
of: a renewable energy project; an emission reduction from process
improvements in manufacturing; an energy efficiency improvement
project; a fuel switching project; a carbon sequestration program;
a transportation efficiency improvement project; a solar power
technology project; a fuel-switching program; a reforestation
project; or a project to reduce methane, perfluorocarbons (PFCs),
hydrochlorofluorocarbons (HFCs), nitrous oxide (N2O) or sulphur
hexafluoride (SF6) emissions.
44. The method of claim 42, wherein the predetermined factors
include at least one of: a country in which an ERP is based; a
country in which the seller of an ERP is based; the credit rating
of a company associated with an ERP; the technology related to an
ERP; catastrophic risk associated with an ERP; emission data
associated with an ERP; or a government having jurisdiction over an
ERP.
45. The method of claim 42, wherein the predetermined factors
include at least one of: procurement risk; market risk; credit
risk; fraud risk; or legal risk.
46. The method of claim 42, wherein the MPUs have a risk profile of
substantially the entire portfolio and are not tied to any specific
ERP.
47. The method of claim 42, further comprising processing a request
to display over a network information associated with at least one
of: VERs; ERPs; or MPUs.
48. The method of claim 42, further comprising providing an
investment review panel to review the predetermined factors and
modifying the predetermined factors if any of a list of
predetermined criteria change.
49. The method of claim 42, further comprising converting the MPUs
into valid compliance units (VCUs).
50. The method of claim 42, further comprising providing an
insurance product to guarantee the conversion of MPUs into valid
compliance units (VCUs).
51. The method of claim 42, further comprising charging membership
fees for evaluating potential VERs for the portfolio.
52. The method of claim 42, further comprising charging a
percentage of the value of the VERs as a fee for converting VERs to
MPUs.
53. The method of claim 42, further comprising charging brokering
fees for transferring MPUs between parties.
54. The method of claim 42, further comprising charging
administrative fees for redeeming MPUs.
55. A method comprising: providing consulting services to potential
sellers of emissions reduction units (VERs); providing an account
for holding VERs that have been validated and verified; and
charging fees to process VERs.
56. The method of claim 55, wherein the account is in a portfolio
database.
57. The method of claim 55, wherein the ERPs include at least one
of: a renewable energy project; an emission reduction from process
improvements in manufacturing; an energy efficiency improvement
project; a fuel switching project; a carbon sequestration program;
a transportation efficiency improvement project; a solar power
technology project; a fuel-switching program; a reforestation
project; or a project to reduce methane, perfluorocarbons (PFCs),
hydrochlorofluorocarbons (HFCs), nitrous oxide (N2O) or sulphur
hexafluoride (SF6) emissions.
59. The method of claim 58, wherein the predetermined factors
include at least one of: a country in which an ERP is based; a
country in which the seller of an ERP is based; the credit rating
of a company associated with an ERP; the technology related to an
ERP; catastrophic risk associated with an ERP; emission data
associated with an ERP; or a government having jurisdiction over an
ERP.
60. The method of claim 58, wherein the predetermined factors are
associated with emissions reduction projects (ERPs) and include at
least one of: procurement risk; market risk; credit risk; fraud
risk; or legal risk.
61. The method of claim 55, wherein processing includes processing
a request to transfer ownership of mutual portfolio units (MPUs)
between parties, wherein MPUs are based on VERs.
62. The method of claim 55, wherein processing includes processing
a request to redeem mutual portfolio units (MPUs) from the
portfolio, wherein MPUs are based on VERs.
63. The method of claim 55, wherein processing includes processing
a request to convert VERs to mutual portfolio units (MPUs).
64. The method of claim 55, wherein processing includes processing
a request to display over a network information associated with at
least one of VERs and mutual portfolio units (MPUs), wherein MPUs
are based on VERs.
65. The method of claim 55, further comprising providing an
investment review panel to review predetermined factors and
modifying the predetermined factors if any of a list of
predetermined criteria change.
66. The method of claim 55, further comprising converting mutual
portfolio units (MPUs) into valid compliance units (VCUs), wherein
MPUs are based on VERs.
67. The method of claim 55, further comprising providing an
insurance product to guarantee the conversion of mutual portfolio
units (MPUs) into valid compliance units (VCUs), wherein MPUs are
based on VERs.
68. The method of claim 55, further comprising charging membership
fees for evaluating potential VERs for the portfolio, wherein MPUs
are based on VERs.
69. The method of claim 55, further comprising charging a
percentage of the value of the VERs as a fee for converting VERs to
mutual portfolio units (MPUs), wherein MPUs are based on VERs.
70. The method of claim 55, further comprising charging brokering
fees for transferring mutual portfolio units (MPUs) between
parties, wherein MPUs are based on VERs.
71 The method of claim 55, further comprising charging
administrative fees for redeeming mutual portfolio units (MPUs),
wherein MPUs are based on VERs.
72. A method comprising: accepting verified emission reductions
(VERs); providing consulting services to sellers of VERs to verify
the VERs; converting accepted VERs into mutual portfolio units
(MPUs); and issuing shares to sellers in exchange for the VERs.
73. The method of claim 72, wherein each share is an asset backed
tradable security based on a percentage of the value of the entire
portfolio.
74. The method of claim 72, wherein VERs represent emissions
reductions that have been verified by a third party indicating that
a stated reduction has occurred in a stated period.
Description
TECHNICAL FIELD
[0001] The invention generally relates to a technique for
generating an emissions reduction portfolio.
BACKGROUND
[0002] Rising concentrations of greenhouse gases (GHGs) in the
earth's atmosphere may result in irreversible climate changes. The
GHGs include water vapor, methane, ozone, carbon monoxide, nitrous
oxide, and carbon dioxide (CO.sub.2). Carbon (in the form of
CO.sub.2 and methane) is emitted by volcanoes and by rotting
vegetation and other organic matter, but is sequestered or absorbed
by Carbon sinks such as trees (their roots, branches, trunks and
leaves are composed mainly of carbon), plankton, soils and water
bodies.
[0003] However, increases in burning of fossil fuels like coal,
oil, and natural gas, in which carbon has been stored for millions
of years, combined with accelerated land clearance has led to
unprecedented levels of GHGs. Carbon sinks have not been able to
keep up.
[0004] Because of concern over the increase in GHGs, many developed
countries agreed to the United Nations Framework Convention on
Climate Change (UNFCCC), which imposed limits on GHG emissions.
Under the Kyoto protocol, developed countries are required to limit
their GHG emissions to specified levels. The Kyoto protocol allows
the use of Carbon sinks such as reforestation activities. The Kyoto
protocol provides three mechanisms that may allow a country to
reduce the cost of meeting their emissions caps by engaging in
emissions reduction trading.
[0005] First, International Emissions Trading (IET) allows
countries with excess emissions reductions to use or trade them to
offset emissions at another source inside or outside the country.
Second, Joint Implementations (JI) allows Annex 1 countries
(developed countries or companies from these countries) to
implement emission reduction projects jointly that limit or reduce
emissions, or enhance sinks, and to share the emission reductions.
Lastly, the Clean Development Mechanism (CDM) grants emissions
credits for investments in emission reduction projects located in
developing countries.
SUMMARY
[0006] In one implementation, a first aspect of the invention
includes a computer-based technique for receiving verified emission
reductions (VERs) associated with emission reduction projects
(ERPs) and converting the VERs into mutual portfolio units (MPUs)
based on predetermined factors. An emissions reduction portfolio
database of MPUs is created.
[0007] The aforesaid technique may include ERPs that include at
least one of: a renewable energy project, emission reductions from
process improvements in manufacturing, an energy efficiency
improvement project, a fuel switching project, a carbon
sequestration program, a transportation efficiency improvement
project, a solar power technology project; a fuel-switching
program; a reforestation project; or a project to reduce methane,
perfluorocarbons (PFCs), hydrochlorofluorocarbons (HFCs), nitrous
oxide (N2O) or sulphur hexafluoride (SF6) emissions. The
predetermined factors may include at least one of a country in
which an ERP is based, a country in which the seller of an ERP is
based, the credit rating of a company associated with an ERP, the
technology related to an ERP, catastrophic risk associated with an
ERP, emission data associated with an ERP, and a government having
jurisdiction over an ERP. The predetermined factors may include at
least one of: a procurement risk, market risk, credit risk, fraud
risk, or legal risk. The MPUs may have a risk profile of
substantially the entire portfolio and are not tied to any specific
ERP.
[0008] The techniques may include processing at least one of: a
request to transfer ownership of MPUs between parties; processing a
request to redeem MPUs from the portfolio; or processing a request
to display over a network information associated with at least one
of: VERs, ERPs, or MPUs. The techniques may include providing an
investment review panel to review the predetermined factors and
modifying the predetermined factors if any of a list of
predetermined criteria change. The techniques may include
converting the MPUs into valid compliance units (VCUs), and
providing an insurance product to guarantee the conversion of MPUs
into valid compliance units (VCUs).
[0009] The techniques may also include at least one of: charging
membership fees for evaluating potential VERs for the portfolio;
charging a percentage of the value of the VERs as a fee for
converting VERs to MPUs; charging brokering fees for transferring
MPUs between parties; or charging nominal administrative fees for
redeeming MPUs.
[0010] In a second aspect, the invention provides an apparatus
configured to perform the methods disclosed in the first
aspect.
[0011] In a third aspect, the invention provides an article
comprising a computer-readable medium that stores computer
executable instructions for causing a computer to perform the
methods disclosed in the first aspect.
[0012] In a fourth aspect, the invention provides a method based on
the methods disclosed in the first aspect. In addition, this aspect
includes processing at least one of a request to transfer ownership
of at least one MPU between parties, and a request to redeem at
least one MPU from the portfolio.
[0013] In a fifth aspect, the invention provides a method that
includes providing consulting services to potential sellers of
emissions reduction units (VERs), providing an account for holding
VERs that have been validated and verified, and charging fees to
process VERs.
[0014] In a sixth aspect, the invention provides a method that
includes accepting verified emission reductions (VERs), converting
accepted VERs into mutual portfolio units (MPUs), and issuing
shares to sellers in exchange for the VERs
[0015] The details of one or more embodiments of the invention are
set forth in the accompanying drawings and the description below.
Other features, objects, and advantages of the invention will be
apparent from the description and drawings, and from the
claims.
BRIEF DESCRIPTION OF THE DRAWINGS
[0016] FIG. 1 is a block diagram of an emissions reduction
portfolio system according to an implementation of the
invention.
[0017] FIG. 2 is a flow chart of an emissions reduction portfolio
system according to an implementation of the invention.
[0018] Like reference symbols in the various drawings indicate like
elements.
DETAILED DESCRIPTION
[0019] FIG. 1 is a block diagram of an emissions reduction
portfolio system 10 according to an implementation of the
invention. The system 10 includes a conversion engine 16 having a
conversion process for converting verified emissions reductions
(VERs) 14 associated with emissions reduction projects (ERPs) 12 to
mutual portfolio units (MPUs) 24. The conversion engine 16 performs
this conversion based on predetermined factors associated with ERPs
14 (e.g. the technology involved in ERPs). Information related to
MPUs 24 is stored in a portfolio database 20 for subsequent
processing including transfer and redemption transactions. VERs
required to underwrite the risks within the conversion process are
stored in a reserve 22. An investment review panel 18 may evaluate
the performance of the conversion engine 16. Although MPUs 24 are
based on ERPs 12, MPUs have a risk profile of substantially the
entire portfolio 20 and are not tied to any specific ERP.
[0020] In general, a party, such as a shareholder having an account
in the portfolio 20, may submit VERs 14 (i.e. units representing
tonnes of emission reductions for meeting GHG emissions limits)
associated with ERPs which may be subsequently converted to MPUs
24. The party may redeem one or more MPUs 24 at any time, such as
for compliance or retirement purposes. Upon redemption, the shares
associated with MPUs 24 are issued to the shareholder and the
shares are canceled from the portfolio 20. The shareholder receives
the amount of shares requested from its account. These shares are
backed by a weighted combination of the portfolio's 20 overall mix
of tonnes, up to the amount on deposit in the account. Similarly,
the system 10 can facilitate transactions among account holders of
the portfolio 20, as well as between account holders and
non-account holders. The system 10 also facilitates transactions
initiated by third-party brokers or directly between account
holders and/or non-account holders.
[0021] A standard computer system (e.g. client/server
configuration) can be used to implement the functions of the system
10. Such a system may include a computer having a processor and
memory capable of executing one or more programs to perform the
functions of the conversion engine 16 and a database for managing
MPUs 24 of the portfolio 20. The computer system can include a
network interface having hardware and software components to allow
participants access to the system 10 over a network such as the
World Wide Web using, for example, Web pages. The network interface
may allow the system 10 to receive information related to ERPs,
display information related to ERPS, MPUs or other information, and
to process requests to transfer and redeem MPUs.
[0022] The system 10 performs functions similar to those performed
by a bank, a rating agency, and a unit trust. As a bank, for
example, sellers of VERs 14 may deposit their VERs into the system
10. However, the system 10 does not buy VERs 14, rather, the system
provides an account where VERs may be held. The system 10 may
provide assistance and expertise to the seller by permitting access
to professional services associated with ERPs 12. It is anticipated
that there will be preferential rates agreed with service providers
which are accessible to participants.
[0023] Once VERs 14 are deposited and accepted into the system 10,
the VERs may be assessed, rated and converted into MPUs. A
resultant tonnage of MPUs can be returned as consideration or sold
to an independent third party. This banking role is also similar to
a custodian role. For example, the system 10 holds assets (i.e.
MPUs), manages transfers between account holders and provides
assurance and expertise in the ongoing management of assets for
participants in the emission reductions market.
[0024] These activities have also been termed a Carbon Repository
where the VERs are placed in the Repository for safe keeping and to
ensure the development of a diversified Portfolio of emission
reductions.
[0025] Although the system 10 can be viewed as a bank, it also
differs from a bank in a number of ways. For example, in a bank, a
cash deposit is typically made and subsequently the initial cash is
extracted from the bank. In contrast, in the system 10, a deposit
of VERs 14 (i.e. a particular amount of VER tonnes) is made and
subsequently a new instrument (i.e. MPUs) is issued based on those
(and other tonnes.) The MPUs 24 represent shares in the entire
portfolio 20 of VERs and is an asset backed tradable security.
Title to the depositors' own VERs 14 is signed over to the system
10 in exchange for MPUs 24.
[0026] As a rating agency, the system 10 may allow VERs 14
deposited in the portfolio to undergo a quality assessment. For
example, the conversion engine 16 using a conversion process that
evaluates a wide range of variables performs this process. The
variables may provide a measure (e.g. conversion ratio) of the
probability that VERs 14 will be delivered and of the quality of
those VERs.
[0027] As a unit trust, the system 10 allows VERs 14 to be
deposited into accounts and then converted to MPUs 24. The
conversion process removes the identity of the seller. The MPUs 24
may be considered homogenous transferable instruments. They
represent the portfolio 20 as a whole and are not linked to any
specific underlying ERP 12. Thus, MPUs 24 hold the risk
characteristics of the portfolio 20 as a whole.
[0028] The system 10 may charge the seller of VERs 14 a membership
fee to cover registration, legal agreements and other set up costs
involved in enrolling the seller into the system. The system 10
also may charge a fee for sourcing professional services. Once VERs
14 are deposited into the system 10, a commission may be charged
(e.g. in the form of VERs) for handling transactions such as
selling and redemption transactions. For example, when a seller of
ERPs 12 submits 100 tonnes to the system 10, its account is
credited with 95 tonnes and 5 tonnes are taken into the portfolio's
own account for the commission on the deposit. Once the rating has
been performed--the residual percentage of tonnes is taken to the
reserve to help ensure that the MPUs may be guaranteed for
compliance.
[0029] ERPs 12 refer to one or more projects for mitigating carbon
emissions measured in tonnes of VERs 14. For example, a party
(company/country) interested in selling VERs may be capable of
delivering 50,000 tonnes of VERs per quarter. This party may have
ERPs 12 that include rights to a landfill and plans on extracting
methane from the site by flaring the gas. In another example, a
party may be capable of delivering 100 tonnes of VERs 12 per year
for ten years. This party may be a small operation engaged in ERPs
12 that include fuel switching programs involving switching from
the consumption of paraffin to the use of solar energy.
[0030] The conversion engine 16 applies assessment criteria that
include risks and factors associated with ERPs 12 when it converts
ERPs to MPUs 24. For example, such factors may include the type of
ERPs such as renewable energy projects, emission reductions from
process improvements in manufacturing, energy efficiency
improvement projects, fuel switching projects, carbon sequestration
programs, transportation efficiency improvement projects, solar
power technology projects, fuel-switching programs, reforestation
projects, or projects to reduce methane, perfluorocarbons (PFCs),
hydrochlorofluorocarbons (HFCs), nitrous oxide (N2O) or sulphur
hexafluoride (SF6) emissions. Other factors may relate to ERPs 12
including the country in which ERPs are based, the country in which
the seller of ERPs is based, the credit rating of a company
associated with ERPs, the technology used for ERPs, catastrophic
risk associated with ERPs, emission data associated with ERPs, the
government having jurisdiction over ERPs, or other factors. The
conversion engine 16 may also consider risks associated with ERPs
12 such as procurement risk, market risk, credit risk, fraud risk,
and legal risk. The conversion engine 16 may incorporate one or
more techniques to manage these risks and factors. Examples of such
techniques include a risk weighting system in which relative scores
are assigned to each of the factors, a decision tree technique in
which the factors/risks represent nodes on the tree, or other
techniques. These risks and factors are described in detail
below.
[0031] A party interested in selling VERs 14 may provide
information regarding the nature of the emission reductions that
they are seeking to deposit in the system 10. Such information may
include recent financial results, forecast financial performance
indicators, future strategy documentation, technical specification
of the project, baseline calculations (i.e. the amount of emissions
before the project was initiated, where applicable) forecast
emission reductions.
[0032] The conversion engine 16 may use this information as part of
its assessment criteria to disaggregate and subsequently quantify
the following risks associated with EPUs: procurement risk, market
risk, credit risk, fraud risk, and legal risk. In general,
procurement risk is an important risk to quantify prior to
acceptance of VERs 14 into the system 10. Market and credit risk
are of ongoing concern throughout the life of MPUs 24, and legal
and fraud risks are common to most instruments transacted in the
financial markets and also need monitoring on an ongoing basis.
These risks may need to be quantified to enable the system 10 to
effectively assess each VER 14 offered for submission to the
portfolio 20. These risks are described in further detail
below.
[0033] Procurement risk is the exposure of the portfolio's 20
financial performance arising from variation in the quality of ERPs
12 that are being accepted into the portfolio. It is associated
with the qualification of ERPs 12 to the portfolio 20 as well as
the potential for non-delivery of ERPs. This risk also includes the
possibility of partial or total loss of value of ERPs 12 submitted
to the portfolio 20 as collateral (i.e. an VER or MPU) which may
expose the portfolio to financial loss.
[0034] Procurement risk may arise each time the portfolio considers
accepting a third party's ERPs 12. The procurement risk includes
the process by which both the quality and probability of delivery
of the emission reduction is assessed. It also includes determining
the ability of the portfolio 20 to subsequently honor its
guarantees based on the MPUs issued to purchasers.
[0035] The sources of procurement risk may include: the eligibility
of ERPs 12 relative to qualification criteria (i.e. risks and
factors); the quality of monitoring of the emissions from ERPs; the
quality of the determination of a baseline of ERPs against which to
assess emissions reductions; the quality of the determination of
ERPs boundaries; and the uncertainty over the ownership rights of
the ERPs. The drivers (i.e. factors) of this risk may include: (for
overseas projects) sovereign governments making political decisions
not to authorize ERPs 12 or transfers of allowances or credits; the
quality of an ERP design so that the project is not approved as
delivering genuine reductions; use of inappropriate monitoring and
reporting protocols for the measurement of emission reductions
(i.e. the emission reductions are not verified and thus deemed not
delivered).
[0036] The system 10 (i.e. conversion engine 16) may also quantify
the following risks and factors associated with procurement risk:
eligibility within the jurisdiction where the ERPs are undertaken;
political change in the jurisdiction effecting ERP completion;
environmental or developmental effects; measuring or monitoring
procedures; baseline calculation methodology; technology change
providing reductions for the ERP; verification standards for the
ERP; accounting for the emission reductions of the ERP; natural
disasters affecting operation or completion of the ERP; seller
subsequently discovers they do not have ownership of the credit;
and allocation issues--where current trading is based on
anticipated future allowances which are not granted.
[0037] Market risk refers to the exposure of the portfolio's
financial performance arising from the movements in the underlying
prices of the commodities with which it is dealing. For the system
10 to remain solvent and to ensure it can meet all financial and
contractual obligations when they fall due, market risk may be
managed. The system 10 may be exposed to the risk that the market
may fail for it requires market risk to exist for the value
proposition to be realized.
[0038] Credit risk is the risk and uncertainty associated with the
ability of counter-parties associated with VERs 14 to honor their
contractual obligations in accordance with agreed terms.
Specifically, the system 10 may manage this risk by ensuring that
the assessment criteria for all third parties to the portfolio have
been screened for suitability. The system 10 may continue to assess
the counter-parties to provide early warnings of any potential
default by a major counter-party potentially jeopardizing the
system.
[0039] Fraud risk is the risk that parties may undertake illegal or
unauthorized acts relating to the distribution of MPUs in the
market. This risk is a standard risk for all financial instruments
and standard risk identification, quantification and management
techniques can be adapted for use in the system 10.
[0040] Legal risk refers to the possibility that property rights
associated with VERs 14 may become enforceable. The legal risk
within the system 10 can be managed by use of legal advice.
[0041] MPUs 24 are defined as a right to a specified future tonnage
of emission reductions; however, the emission reductions used to
provide that right are not specified. Rather, MPUs 24 are deemed to
hold the combined characteristics of the basket of VERs 12 that are
within the system 10. MPUs 24 may incorporate a guarantee that they
can be converted into valid compliance units (VCUs) for whichever
jurisdiction it is issued for use in a governmental GHG trading
scheme. The system 10 may be capable of producing VCUs when the
full rules for government schemes are established. One alternative,
for example, may include providing an insurance product to
guarantee convertibility of MPUs 24 to VCUs in specified
jurisdictions.
[0042] MPUs 24 are similar to financial instruments which can be
exercised within a specified time window (similar to an American
option). For example, MPUs 24 may granted or purchased for exercise
within a certain time date (i.e. for offset against emissions
generated between Jan. 1, 2009 and Dec. 31, 2009) or by a certain
date (i.e. for offset against any emissions generated between date
of purchase and Jun. 30, 2008). Other financial structures and
derivative products may be developed using MPUs 24 as a base. At
the date of maturity of an MPU 24, the holder may present the
contract to the system 10 where it is exchanged for the evidence
and ownership of the emission reductions equaling the tonnage
owed--whether in valid compliance units or another combination of
tonnes and cash consideration.
[0043] Managers of the system 10 may maximize the value of the
portfolio as they see fit. Operating guidelines and appropriate
risk management criteria can be developed detailing what is and is
not appropriate. The managers may be authorized (within limits) to:
pass the existing VERs through a Clean Development Mechanism (CDM)
to obtain compliant credits; to trade the existing VERs in the
portfolio for other third party VERs where it perceives pricing
mismatches; to liquidate VERs for cash to lock in significant
gains; to transact in other stipulated instruments with similar
risk characteristics to further diversify the portfolio's risk (for
example through option structures developed in the emission trading
market); and to purchase insurance providing guarantees to convert
existing instruments to compliance units in the relevant
jurisdiction.
[0044] In the current emission reduction trading market, sellers of
VERs may need to ensure that their projects will qualify using
criteria stated by purchasers. The definition of what qualifies may
often vary depending on the requirements of the purchaser. The
emission reduction will then need to be verified in the period in
which it occurs, where the buyer will dictate the acceptable
verification methodology. Currently a number of verification and
validation criteria exist in the market and others can be defined
by the purchaser. The system 10 is designed to avoid these
complications in the emissions trading market and facilitate the
trading of the market.
[0045] The system 10 may include predetermined and pre-published
requirements for the validation of ERPs 12 and guidelines for the
levels of verification required. This may permit potential sellers
to structure their projects to maximize their chances of meeting
the qualification criteria. The system 10 may include validation
and verification procedures for ERPs 12.
[0046] The system 10 may help diversify risk for the purchaser of
emission reductions (i.e. MPUs 24). For example, when a purchaser
obtains MPUs 24 from the system 10, it is obtaining the future
right to exchange the MPUs for verified emission reductions of a
specific vintage. Since MPUs are part of the system 10, the
relative emission received will be based on a proportion of the
entire portfolio of emission reductions. The system 10 seeks to
provide the tonnage agreed--although that may be tempered by the
overall delivery of tonnes into the system 10.
[0047] The value of MPUs 24 may depend on the performance of the
system 10. For example, if an MPU 24 is for the delivery of 100
tonnes of reductions, but the system 10 as a whole delivers 5% more
reductions than expected (through a lower than anticipated default
rate on VERs), then those excess reductions may be delivered to the
MPU holder. Similarly, if the portfolio only delivers 95% of the
intended reductions then the MPU holder will only receive 95% of
the reductions they expected.
[0048] MPUs 24 obtained from the system 10 may reduce the risk of
non-delivery risk. MPUs represent shares in the delivery risk from
the portfolio of entities and projects participating in the
portfolio, rather than the delivery risk from just one project.
Individual sellers deposit their VERs in the portfolio--these
create the portfolio effect that spreads the risk of non-delivery
of emission reductions amongst the population of entities and
projects in which it has invested. The risk of non-delivery has
been assessed during conversion of ERPs into MPUs and has been
factored into the conversion ratio of the ERPs to MPUs.
[0049] The system 10 may allow non-emitters to develop a long
position. Participation in the system 10 on the deposit side is not
limited to emitters with their own physical long position in the
market. The system 10 may operate a sourcing and buying service
through which a potential participant can instruct the system to
obtain for them emission reductions in the market. Within such an
arrangement, the participant may request that the system 10 act as
an agent in the market to source a set tonnage of VERs from third
parties. The participant takes ownership of those tonnes and
deposits those VERs in the system 10 where they are processed by
the conversion engine 16.
[0050] FIG. 2 is a flow chart 100 of a process for handling ERPs 12
in a portfolio system 10 according to an implementation of the
invention (see FIG. 1). The process 100 determines (block 102)
whether a seller of VERs 14 is seeking to present the VERs to the
system for deposit into the system 10. If the seller does present
VERs 14, then the process 100 receives (block 104) VERs from the
seller. The process 100 may track VERs 14 by creating a record in a
database for each VER. The record may include identification
information such as an account number related to the seller of the
VER, a serial number of each VER tonne deposited, a code for each
type of VER deposited, a code for the country where the ERP takes
place, a code identifying the verifier, the date of verification,
the date/time of deposit, and other information.
[0051] The VERs 14 may then be converted (block 106) to one or more
MPUs 24. For example, the conversion engine 16 applies assessment
criteria which includes factors and risks associated with an ERP 12
such as the type of ERP, factors involved in the ERP, the risks
associated with the ERP, and other factors. The conversion engine
16 may employ one or more techniques to implement the assessment
criteria. Examples of such techniques can include a risk weighting
system in which relative scores are assigned to each of the
factors, a decision tree technique in which the nodes of the tree
are represented by the factors, or other techniques.
[0052] To illustrate, assume that company `A` plans on delivering
50,000 tonnes of VERs per quarter. Further assume that it is a
large publicly listed multinational which has bought the rights to
a landfill site and holds proven proprietary technology for
extracting methane from the site. In contrast, company `B` plans on
delivering 100 tonnes of VERs per-year for ten years. In addition,
this company is a small operation engaged in a fuel-switching
program from the consumption of paraffin to the use of solar
energy. In addition, company `A` has a large market capitalization
whereas company `B` is private. This information may suggest that
company `A` may have a greater financial strength than company `B`
and hence may be more likely to deliver the reductions in the long
term, whereas company `B` is smaller and less financially robust.
Although both companies use proven technologies, company `B`
requires the calculation of a baseline. Such a calculation may
possess problems in providing accurate verification of the
resultant emission reduction. Moreover, company `B` also is in an
overseas jurisdiction that may not permit the export of the
emission reduction.
[0053] Thus, although both companies offer viable projects, the
conversion engine may determine that Company `A` might be offered
MPUs equating to 42,000 tonnes per quarter (84% conversion ratio)
whereas company `B` might only be offered MPUs equating to 50
tonnes per annum for sale into the system 10 (50% conversion
ratio.) This example illustrates how the conversion engine may
evaluate different sellers such that they obtain different ratios
of MPUs relative to their VERs. Every seller may receive a lower
tonnage of MPUs than they submit to the system because there is
always a risk of non-delivery of future emission reductions.
[0054] In addition to the conversion process, the investment review
panel 18 may review the MPUs 24 and the conversion process used to
produce the MPUs. The panel 18 may convene on a periodic basis such
as monthly or quarterly to review the conversion process performed
by the conversion engine 16. The investment review panel 18 may
assess whether the conversion process appears consistent with their
understanding of the risks inherent within each ERP 12. The members
of the investment review panel may include the participants of the
system 10. This review process may provide some control over the
conversion process, may provide opportunities to update the
conversion process and act as a forum for promoting dialogue and
learning between participants in the portfolio.
[0055] Once the conversion engine 16 processes the VERs 14, the
process 10 creates (block 108) a portfolio database 20 that include
MPUs 24. Each MPU 24 may be associated with a record (e.g. holding
account) in the database 20 and may include identification
information such a unique account number, the number of shares in
the portfolio, expiration dates, and other information.
[0056] The process 10 determines (block 110) whether a party is
interested in transferring MPUs. If there is a request to transfer
MPUs, then the process 100 handles (block 112) the request to
transfer ownership of MPUs between parties. Transferring MPUs to
purchasers is managed to ensure compliance with regulatory
requirements for interacting with a National Registry. For example,
UNFCCC has issued a number of reporting requirements for GHG
registries. In addition, there is a requirement that national
jurisdictions make the name and location of account owners, contact
details and the quantity of emissions, by account, publicly
accessible at any time.
[0057] There is also a requirement to report the transfer of
emission reductions. However, there may not be a requirement to
track the transfer of future emission reductions. The system 10 may
include procedures to differentiate between trades and transfers
and to feed all transfers into a reporting system. For example, an
emission reduction forward trade may only require the reporting at
the date when the transaction matures and the transfer of the
emission reduction takes place. No reporting is required prior to
the delivery of the contract.
[0058] Thus, it is the physical transfer of the emission reduction
that is important and not the date when commitments are made to
trade the emission reduction. Hence, a transfer is not recorded
when a seller deposits VERs in the system 10, rather, the transfer
is only recorded when the seller generates VERs (usually at a
stated time in the future) and they are transferred to the
purchaser.
[0059] A national registry may have a requirement to maintain a
publicly available record of the emissions reductions. This may
include a serial number linking to the following information:
project name, project location, both the party and the town/region
in which the project is located; year of issue. In addition,
information is required on project documentation available
electronically on areas such as: project design documents;
validation reports; notifications of registration; monitoring
reports; verification projects; notification of certification; and
notification of issuance of VERs for each project.
[0060] The system 10 maintains records for VERs 14 and MPUs 24.
There is a requirement to differentiate between VERs that have
actually been achieved (i.e. those which have been validated and
the VERs actually verified) and the future VERs where the project
has been validated but the reduction is anticipated to occur at a
specified future point.
[0061] This differentiation may allow the system 10 to assess which
emission reductions have occurred and which are still forecast to
occur in the future. This may help the system 10 manage delivery
risk to which reductions are exposed as opposed to the reductions
that have been delivered into the portfolio.
[0062] The process 100 checks (block 114) the system 10 for a
transaction to redeem MPUs 24. If the process 100 detects such a
request, the process 100 redeems (block 116) MPUs 24 from the
system 10. The redemption process may include matching MPUs 24
presented at the maturity of the contract with the requisite
tonnage of verified emission reductions (VERs). Each MPU 24 issued
is documented along with its tonnage, time period and other
essential characteristics. Each MPU 24 is then matched with the
requisite tonnage of emission reductions which are due to be
delivered in that time period--the validated and verified emission
reductions are then transferred to the purchaser and the MPU
expires.
[0063] However, when MPU 24 are redeemed, there may be no guarantee
regarding which ERP 12 project is used to satisfy a particular MPU.
For example, during the course of ERPs 12, it may become apparent
that some of the ERPs 12 may be converted to VCUs while other
projects within the system 10 may not comply. To manage this
potential future conflict, it may be necessary to propose a sharing
mechanism whereby MPU holders truly obtain a representative mix of
projects within the system 10.
[0064] For example, the system 10 may have 1 million tonnes of VERs
to spread between the holders of VERs. In one embodiment, the
system 10 may divide the VERs 14 between VERs that are convertible
to VCUs and VERs that are not convertible. Both subsets may then be
further subdivided by category of reduction type--for example fuel
switching, forest sequestration. These may then be apportioned
between MPU holders in an equitable fashion on the basis, for
example, of the size of holding of MPU's receiving that proportion
of the convertible reductions.
[0065] Once the process 100 processes a request to transfer MPUs
(block 112) and/or redeem MPUs (block 116), the process returns to
the beginning of the process (block 102) to process any further
requests.
[0066] The portfolio system 10 may provide one or more of the
following advantages. The system 10 may reduce costs for buyers and
sellers having emission reduction requirements. The current cost of
initiating and completing an emission reduction sale may be
significant. In contrast, transacting with the system 10, may
involve dealing with a third party which has available expertise,
has performed these types of deals in the past, and has an
effective and efficient process to guide potential buyers and
sellers through the selling process. This may greatly reduce
management time, reduce the need to incur significant professional
fees and reduce transaction time.
[0067] Currently, the amount of management time involved in
searching for suitable counter-parties can be extensive. In
contrast, transacting with the system 10 may permit both sellers
and purchasers to assess with ease whether a market exists to meet
their requirements. This offers a way to simplify the complexity of
the existing market and to make it more efficient. In addition, the
system 10 may allow VERs of requisite quality to be deposited in
the system 10 only when they have passed the quality assessment
regardless whether or not a buyer for their reductions has been
identified.
[0068] The system 10 may permit entities wishing to purchase
emission reductions with access to high quality MPUs saving
considerable time and effort. These cost savings may benefit both
the seller and the purchaser and illustrate that the value
generated through transacting with the portfolio is cumulative with
value accruing to both sellers and purchasers.
[0069] The system 10 may provide economies of scales by using
professional services. The system 10 may use a limited number of
third party verifiers and validators that the system may use for
all VERs presented to the system. The system 10 may negotiate
competitive deals with these service providers resulting in
considerable cost savings in the validation and verification of
transactions.
[0070] The system 10 may provide anonymity to sellers and
purchasers. The system 10 obtains VERs from sellers and removes
their identity by accepting specific emission reductions into the
system and then issuing MPU from the system. The purchaser of MPUs
does not know the identity of the seller of the specific VERs or
the nature of the specific projects behind the MPU. This `identity
scrubbing` is based on a purchaser of MPUs buying a set tonnage of
generic emission reductions with guaranteed delivery potentially
backed by an insurance product. The anonymity provided to the
sellers may allow them to access a greater market than in the
past.
[0071] Although confidentiality is required in the operation of the
system 10, there is also a requirement for a high degree of
transparency in relation to the tonnage within the portfolio. For
example, for marketing purposes it may be important to provide
information regarding the type of VERs within the portfolio and the
identity of the contributors to the portfolio. For example,
marketing information may disclose that company A, B and C have
each committed at least 100,000 tonnes to the system 10. The
tonnage within the system 10 may be based on projects such as fuel
switching projects, landfill methane, or other projects. Such
information must be packaged to ensure sufficient information is
disclosed to convey the high quality of participants and VERs
within the system 10 without disclosing information linking
directly an original owner to their tonnage of VERs within the
system. The system 10 also may ensure that counter-parties in any
transfers of VERs are kept confidential, while making public the
volume of trades.
[0072] Sellers of ERPs may obtain specific benefits by using the
system 10. For example, sellers obtain a fungible instrument (i.e.
MPU) based on individual emission reduction projects deposited in
the system 10. They can either take a share of the portfolio in
return in the form of MPUs or their emission reductions can be sold
to a third party as part of another MPU.
[0073] Traditionally, once a seller had their reduction activity
assessed and agreed by the purchaser, the seller would sign over
the rights to those reduction units directly to the purchaser. In
contrast, participation in the system 10 may offer more dynamic
participation in the traded carbon market to those who desire such
participation.
[0074] Once the system accepts ERPs from a seller, the seller can
opt either: to be paid for the reduction added to the system 10
(where they lock in the value for their activities at the market
value at that time for the volume of MPU obtained); or to take back
the equivalent MPUs equitable to the amount of their VER input and
hold those MPUs, to either sell them when the market price rises or
to hold them to maturity. This flexibility may allow sellers to
release their VERs to the portfolio but defer their payment to a
subsequent period when they believe they can maximize their income.
This flexibility within the market is not available under the terms
of most GHG emission reductions deals performed recently. The
system 10 also may provide sellers with the option to retain their
reductions until they are certain that they will not need them
themselves.
[0075] The system 10 may provide sellers with clearly articulated
requirements. Currently sellers transact directly with the
purchaser, or through a broker. Each purchaser is likely to have
differing requirements regarding the quality, eligibility, vintage,
validation criteria, verification criteria, and baseline
methodology (if applicable). Such differences may make it difficult
and costly for sellers of VERs to assess where to sell their VERs.
In contrast, transacting with the system 10 may provide an
opportunity to deal with a system that provides requirements for
the qualification of VERs for inclusion in the portfolio. The
system 10 may include requirements which are unlikely to vary
significantly allowing sellers to understand what is needed to
qualify when planning their emission reduction projects. These
requirements may include high standards of technical quality from
the ERPS 12 to ensure that the ERPs attracted to the portfolio are
high quality.
[0076] Likewise, the system 10 may provide specific benefits to
purchasers participating in the system. The MPUs may provide the
buyer with a source of high quality emission reduction credits. The
purchasers may obtain MPUs from the system 10 with the confidence
that the VERs underlying the MPUs have been assessed by third party
experts. The assessment criteria may ensure that the VERs
qualifying for inclusion in the system are of a sufficiently high
quality to merit the premium price commanded by a MPU.
[0077] The conversion process used to convert VERs into MPUs also
may provide purchasers with the knowledge that an assessment has
been performed by experts within the system 10 to manage the
procurement risk inherent in the purchase of future emission
reductions. The use of conversion factor to manage the delivery
risk and procurement risk may provide a further empirical measure
to assess the viability of the emission reductions being
purchased.
[0078] An MPU has fungible and transferable characteristics that
may provide a significant value for purchasers, regardless of
whether they are purchased to hold and retire, to offset against
planned future emissions or to sell in the future.
[0079] The system 10 may simplify selling MPUs, whether as part of
an ongoing emission trading strategy or because future emissions
are not anticipated through changes in an operational business
plan. MPUs represent standardized contracts for standardized
emission reductions and are identical to other MPUs in the market
place. As a result, the value of an MPU can quickly be established
and a market price derived and the contracts can be transferred to
other parties with ease. The ease with which MPUs can be
transferred may allow holders to make, for example, a decision not
to emit and then allow them to realize the value from their hedge
by selling it on the open market.
[0080] The delivery of emission reduction tonnes may depend on the
performance of the system 10. For example--if an MPU is for the
delivery of 100 tonnes of reductions--but the portfolio 20 as a
whole delivers 5% more reductions than expected (through a lower
than anticipated default rate on VERs) then those excess reductions
will be delivered to the purchaser. Similarly, if the portfolio 20
only delivers 95% of the intended reductions then the purchasers
will only receive 95% of the reductions they expected.
[0081] Buyers may also benefit from portfolio effect of the system
10. The portfolio effect represents the ability to obtain a number
of similar asset classes where owning the portfolio of assets
changes the risk profile or the asset holding while enabling
similar benefits to be enjoyed. In any transaction with a single
counter-party, there may exist a risk that the counter-party may
not deliver on a number of aspects of their contractual
commitment.
[0082] Currently, there is a risk in the carbon market that VERs
purchased may not be delivered as agreed or that they will not be
delivered at all. Traditionally, this represented a significant
risk in all transactions. In GHG emission reduction transactions,
there have not been many ways of managing this risk. The risk
management strategies available have generally not been
reasonable--namely sourcing VERs from a large cross section of
sellers.
[0083] In contrast, the system 10 may provide a means for the
management of this risk for purchasers as well as providing risk
management opportunities for other risks. In particular, purchasers
of a MPU are not purchasing a specific emission reduction unit from
a specific organization that will be performing the emission
reduction project. Instead, the purchaser is obtaining a unit from
the system 10 for a stated volume of future emission reduction. The
system 10 includes a variety of emission reductions from a variety
of sources that it can use to honor MPUs. So, if one project fails,
other available projects exist with which to satisfy the claim upon
it from the purchaser. The value of the portfolio effect to the
purchaser is that the purchaser is no longer exposed to the failure
of a single counter-party to deliver their commitment. In addition,
such a benefit may enable risk managers to manage non-systemic risk
generated by exposures to specific projects, entities or
geographies.
[0084] The system 10 manages the portfolio effect within the system
by taking into account the portfolio factors into its calculations.
For example, it may consider the anticipated failure rate of each
of the projects and allowing them to become part of the
portfolio.
[0085] The system 10 may incorporate a self-insurance product to
manage the risk of catastrophic failure of ERPs that may threaten
the viability of the portfolio. The system 10 may incorporate an
insurance premium taken by the portfolio on every VER transaction
in VERs. These VERs may be stored and held in the reserve 18 to
provide cover for the risk of default by a seller on its
obligations. Thus, the portfolio includes a `reservoir` of credits
to enable it to honor its commitments. This reserve may be used
subsequently as a premium presented to a third party for an
insurance product.
[0086] The system 10 may allow purchasers to submit their emission
reduction requirements, a tonnage of emission reductions required
and, dependant on sufficient tonnes of reductions in the portfolio
these can be provided to the purchaser. This may allow purchasers
to obtain MPUs when they identify the need for the VERs rather than
identifying a need for them and subsequently spending time
searching for suitable projects. This may enable a potential
purchaser to establish whether the market has the requisite depth
of available credits and then provide the information to allow it
to effectively price the volume of credits required. As a result,
liquidity of the market may be increased.
[0087] In addition to providing benefits to participants such as
buyers and sellers, the system may provide similar benefits to
third parties such as governments, speculators, organizations,
existing emission emitters, merchant bankers and other valuation
professionals, and other participants.
[0088] The system may provide guidance to governments as a model of
how the GHG market is evolving. It may show how the existing market
players are embracing a commercial need, facing the challenge and
generating realistic, commercial workable solutions to the reality
of a carbon constrained world. By monitoring the development of the
portfolio and its operations, governments and policy setting bodies
can learn from the experiences of setting up carbon trading forums
in the private sector. It may help governments to enter into
negotiations with knowledge of a working scheme that evaluates and
trades GHG emission reductions.
[0089] Governments and their departments may also benefit from
participating in the system 10 as buyers of MPUs or as sellers of
VERs. It may also give governments and other public sector
stakeholders unprecedented access to the ideas and experiences of
leading emitters, brokers, traders, verifiers/certifiers,
financiers and other professional service providers interested in
the development of emissions trading as a cost-effective means to
reduce GHG emissions.
[0090] Speculators may also benefit from the system 10. The
commoditization of the market and the reduction of barriers to
entry (i.e. non emitters can obtain positions in MPUs and then
trade them without having to get involved in the underlying
emission reduction projects) may allow speculators to enter the
market. As a result, this may provide: greater liquidity within the
markets as more buyers and sellers enter the markets; more
efficient and accurate pricing of the MPUs; an increase in
financial market methodologies to the pricing and structuring of
deals which will further enhance liquidity; an acceleration of the
acceptance of GHG trading as a legitimate form of trading; and the
increase in the credibility of GHG products as legitimate tools for
risk managers and members of a non-government organization (NGO)
community.
[0091] Organizations may exist on both sides of the market that may
benefit from the system. When they are able to recognize a
structured market place, they may be in inclined to invest in
ERPs/MPUs that have an effective methodology behind them and which
are seen to embody confidence in the other major market
players.
[0092] The development of a market price for VERs may enable
existing emitters to perform meaningful analysis on the likely
future costs of compliance/non-compliance with any future
reductions required. This may lead to relevant emit or not emit
decisions to be made. This type of analysis is likely to be
performed by significant emitters such as power stations or
chemical plants, but could easily be performed by small operations.
This may provide them with a risk management solution for their
carbon risk management program.
[0093] Merchant bankers and other valuation professionals may also
benefit from the system 10. In the past, whenever future valuations
were performed, there had been a tendency to discount the effects
of a carbon constrained economy either because it was deemed
immaterial or too difficult to obtain accurate reliable data. In
contrast, the system 10 may provide price transparency and improve
factoring financial implications of a carbon constrained economy
into valuation models enabling a meaningful assessment of future
liabilities (or income) into pricing decisions.
[0094] A number of embodiments of the invention have been
described. Nevertheless, it will be understood that various
modifications may be made without departing from the spirit and
scope of the invention. Accordingly, other embodiments are within
the scope of the following claims.
* * * * *